Interview with Frank Fahrenkopf, CEO of the American Gaming Association

Fahrenkopf Discusses Online Gaming Issues

Frank Fahrenkopf has more than his fair share of experience in both the political and gaming worlds. After serving as the chairman of the Republican National Committee for most of Ronald Reagan’s tenure as president, Fahrenkopf decided to accept a job as chief executive of the newly formed American Gaming Association in 1995.

He told the members of the AGA at that time that he would serve for one year, just to help “get it off the ground.” Fifteen years later, he remains president and CEO of the association, which has matured into a major lobbying force for the commercial casino industry.

Now, he speaks to Card Player to discuss the AGA’s new position on internet gaming, as well as some of the major issues facing the commercial casino industry today. In the interview, he speculates about the possibility that Barney Frank’s bill may be added to other must-pass legislation, just like the UIGEA was in 2006, as well as why he thinks the controversial UIGEA must remain law.

Stephen A. Murphy: What is the AGA’s current position on online gaming?

Frank J. Fahrenkopf: We are open to the concept of legalized internet gambling, so long as there is a regulatory regime that is put in place that protects the consumer and protects the integrity of the game. We’re at this point in time open to the question of whether it’s a federal or state regulatory regime, although I must tell you I think a majority of the board would favor the states. But until we have something that we’re really going to look at, we can’t get to that question.

Now Harrah’s, as you know, has been working very hard along with others in pushing the Barney Frank bill. The Menendez bill has been sitting there. We don’t know where it’s going. Barney at the last hearing had indicated in response to the request by the ranking Republican [Spencer] Bachus that there would be another hearing where Justice Department would come and testify. The word is, and it’s rumored, because Barney has not said it and his staff is not saying anything, if anything they are going to mark the bill up.

They’ll mark the bill up and try to get it out of committee and onto the floor — or attach it to something that is a guaranteed pass, very much how like UIGEA passed, where they put it on a port security bill. So that’s where it is. At this point in time in the Senate, we don’t see any movement on the Menendez bill, but we understand that there is a lot of effort being made now, saying, "Maybe we ought to just go with a poker carve out. It’s too much to think that we’re going to get everything, so why don’t we focus on the Menendez bill?”

SM: Why do you think a majority of your members would rather have regulation at the state level?

FF: Anyone who has been in the gaming industry for the last 30 years, we have an old saying — ‘We don’t want the camel’s nose under the tent,’ in terms of the federal government and their regulatory regimes and taxes. There’s the fear that the federal government, if it starts regulating and taxing internet gambling, they’re going to say let’s just make it a federal system and tax everything.

SM: A lot of poker players are fearful that if regulation is done at the state level, it’ll affect who online poker players will be able to play with, creating a much more restrictive pool of players and therefore smaller prize pools. Do you think online poker could be regulated at the state level, but still be open for players to compete against others outside of their states?

FF: I think so. If I were doing this — and I’m not — but one of the ways it could work would be if there were a federal oversight with minimal standards, which would be delegated to the states. Therefore, to be a state regulatory agency, you’re going to have to have a lot of experience. The net result would probably be that Nevada and New Jersey are the places where regulatory control would take place, but it would be done in a way where each state didn’t have to deal with it.

Let’s say a state like Alabama said they wanted internet poker. Well, they don’t have a regime that could regulate it. They don’t have the law enforcement, they don’t have the experience. I think it would be natural that the regulatory controls and licensing would be done by experienced jurisdictions, like Nevada and New Jersey.

The question is going to be — and this is an unanswered question — but one that we are concerned with: what about those offshore companies that have been taking sports betting and other bets that is in violation in what is perceived to be U.S. law? Could they come in? I think there’s going to be some real questions as to what the legislatures provide in terms of that.

SM: I would assume that the AGA would not want those companies in the market, correct?

FF: The board has not made that decision, but that’s my assumption. If they’re blatantly violating the law, why would you invite them in? It’s not like people don’t know. There have been a number of executives who’ve been arrested and fined. But there are still people in spite of that who are continuing to take wagers, knowing that it’s the official position of the United States government that it is illegal.

SM: You’ve mentioned that the AGA’s official position is that you are “open to the concept of internet gaming.” But the Barney Frank bill is out there, and you guys remain neutral on it, correct?

FF: At this point in time, we do. We remain neutral on it even though it’s out there.

SM: What are some of the major sticking points on the Frank bill that’s preventing the AGA from taking a stance of it?

FF: The No. 1 issue is the federal regulatory control, the federal system. At this point in time, that’s the major sticking point. Now that’s not to say that if Barney Frank’s bill starts to move and it appears like it’s got a shot to be legalized with the federal regime, the board might not say, well, we think it’s important that internet gambling is the next step, and we might approve it. But I’m just trying to guess, knowing the folks on my board, clearly the federal and regulatory taxation is part of the reason we’re neutral.

SM: Besides Harrah’s, who else on your board is supportive of going for federal regulation as opposed to state regulation?

FF: Well, I think that you probably would get some of the manufacturers that would support it. I think IGT (International Game Technology) and WMS (WMS Gaming Inc.) I’m guessing would support it.

SM: Has Steve Wynn softened his opposition to online gaming?

FF: That’s a good question. I do know that he has hired some experts. I don’t remember the guy’s name (that he hired), but he said that Mr. Wynn has not changed his mind on the Barney Frank bill or the Menendez bill, but he has hired him to make him ‘smart’ on internet gambling. This individual has gone to the Isle of Man, Great Britain, and Gibraltar to do the research.

But I have not heard from Steve himself. There is a widespread rumor running around — and when it comes to internet gambling, there are enough rumors — that he may be softening his view. But I do not know this at this point.

SM: Did the AGA have any involvement in the delay of the UIGEA for six months to June 1, 2010?

FF: No, we did not get involved in that.

SM: And you don’t plan on getting involved with it in the future?

FF: No. See, our view is this — let’s assume that internet gambling was legalized. You would need UIGEA. You would need UIGEA to go after those companies that are wild cards out there who don’t come to be licensed and regulated. So you’re going to need UIGEA.

At this point in time, it’s gotten to be a very contentious thing. You had Barney requesting that it’d be delayed, you had Mitch McConnell (R-KY) representing the pari-mutuel industry in Kentucky, because the pari-mutuel industry thought that MasterCard was no longer going to allow — because let’s face it, internet gambling is going on in the United States in the pari-mutuel industry — and that if it went into effect, MasterCard would no longer allow their cards to be used in the pari-mutuel field.

Senator Reid asked that the delay be extended. Harrah’s wanted it to be extended.

It is my understanding that they will not be further extended, that [U.S. Secretary of the Treasury] Tim Geithner made a deal with Senator Jon Kyl (R-AZ), who released his hold on some of the appointments for Treasury. They said that they’re not going to extend it again.

There are some good parts to UIGEA and there are some bad parts to UIGEA, and the people who really want help with UIGEA are the banks because, let’s face it, the bill did not define what’s legal and illegal. That’s been an open question.

The third circuit has taken the position that casino games are not barred by the Wire Act. Other districts, such as some federal decisions in Missouri, have said that they are barred by the Wire Act.

It’s murky out there. We’ve never had the Supreme Court say, “OK, the Wire Act of 1961 outlaws this.” There’s been no clarity, and that’s caused so many of the problems.

The pari-mutuel industry is involved in internet gambling, and yet the Justice Department says they don’t consider the interstate horse racing act as an exemption of the Wire Act and says what the pari-mutuel industry is doing is illegal, but they’ve never arrested anyone. It’s such a murky, murky area.

So, if in fact legislation is going to pass, whether it’s a Barney Frank bill or a poker carve out like the Menendez bill, we would hope that there would be clarity.

At least now we’re in the position, as far as the AGA is concerned, we can at least be at the table while these things are being drawn to make sure the interests of our members are protected where before we couldn’t even be at the table. So that’s the major change.

SM: In a recent editorial you wrote for Global Gaming Business, you said, “In this challenging election season, it’s important to support those who support our industry,” and you credited Senator Harry Reid as a major ally to the gaming industry. Is it fair to say that the AGA is supporting and endorsing Senator Reid in what is expected to be a tough reelection campaign?

FF: Well, the AGA has never endorsed candidates. I personally, even as a former chairman of the republican party, have endorsed him and have contributed to him. My job is to defend the gaming industry here in Washington, so do I want to have the Majority Leader as someone who is from Nevada and understands the industry or do I want to have a freshman senator?

I think there’s no question that the majority of the people in the industry will support him, though not all — for example, I doubt that Sheldon Adelson (CEO of Las Vegas Sands) who has been very supportive of Republican candidates will be supporting Senator Reid, though I don’t know that…

SM: Sorry to interrupt, but where does Sheldon Adelson stand in terms of internet gaming and federal vs. state regulation?

FF: You know, I haven’t heard from them on where they stand on that. They’re recent members. They were members, then they were out for a few years, now they’ve joined again. I’m not sure I recall where exactly they are.

But on Harry Reid, the most effective ads that are being run right now in Las Vegas for Senator Reid feature Jim Murren, the president and CEO of MGM Mirage, facing the camera and saying if it weren’t for Senator Reid, CityCenter would not have been finished and 15,000 jobs wouldn’t have been created, so reelect Senator Reid.

Historically, the industry has been very supportive of Harry. And remember, he’s a former regulator. And to be frank with you, in terms of internet gambling, whether it’s the Frank bill or Menendez or a poker carve out, I think the key here is going to be what Senator Reid wants to do, what his decision is. I doubt anything is going to get out of the Senate that he doesn’t approve of, and I doubt that the president is going to be supportive of anything that Senator Reid is not supportive of.

SM: How familiar are you with Senator Reid’s current feelings toward online gaming legislation?

FF: Well, historically, Harry has indicated in the past that he was opposed to internet gambling because of the technology. I think the best I could say, as someone from Harrah’s recently told me, he’s going to keep an open mind and they’ve got to convince him that the technology is there. But I don’t think that the Senator has made any decision at this point.

SM: Do you think that the fact that the AGA is now officially open to internet gaming may help to persuade him to give it another look?

FF: No. I’ve known Senator Reid for a long, long time; we played high school baseball against each other. He’s going to make this decision on his own, on what he thinks and whether he thinks it can be properly supervised and if it’s good for the American people to have it legalized on the basis of consumer protection, and whether or not it’d be a positive for his constituents. Those are the concerns. My saying something to him or Harrah’s won’t help; he’s a very independent guy. Because of his experience in the field, no one has to educate him about this other than what new technologies might exist.

Some of the early supporters of this, particularly of the Barney Frank bill, kept talking about this as being new revenue for the federal government and under pay-as-you-go, it could provide funding. I’ve always thought that the more effective argument in favor of legalizing was for consumer protection.

We know that there are millions of Americans betting millions of dollars a year on the internet. It’s unregulated, and I don’t think most of the operators — maybe some, I don’t know — could care less about whether or not it’s legal in the jurisdiction of the bettor, and could care less on whether or not the person is betting is actually the person they say they are, and not a minor. And I don’t think they could care less about the question of responsible gaming.

Since this is going on even with UIGEA, there ought to be a way to properly regulate and tax and protect the public. I think that’s a better argument.

SM: Is there anything we haven’t touched upon that you think could dictate the conversation in future months in regards to online gaming?

FF: Well, you know it, but the argument that poker is different — I think that has legs.

The argument that it’s a game of skill and not a game of chance, well, that doesn’t fly because the courts have looked at it and said, well it is a game of skill, but it’s also a game of chance.

But poker is different. It does not have the social stigma that other gaming has on it. Everyone plays poker. There’s been a poker game in this town that has been running for years for politicians.

I’m just speaking theoretically, I’m not making these arguments, but if there are people in Congress who are concerned whether or not internet gaming can be properly regulated to that standards that we do in Nevada and New Jersey and some of the other states, why not start with poker? Give it a shot, and that will be the proof in the pudding, whether or not it can be properly regulated, rather than totally opening up.

Now there are people who are pushing for legislation now who are not for that. The main proponents of the Barney Frank bill would love to have everything included, including sports betting, which is not going to happen.

To me, starting with poker would be a sensible solution for consumer protection concerns and to try to raise revenue for both the federal and state governments. But that’s not for me to opine.

Comments

If this goes to state level I won't be able to play. Stupid Governor Rounds already said he would not legalize it. And I know why, Deadwood one and Indian Casinos two. Hell we can't even bet over $100 out here. Although why do we need to we only allow some table games and slots.

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